Case

FRONIT STREET

H O S PITAL UNINSURED

CHARGES AND

COLLECTIONS

Wno rs RTcHARD "Dickie" Scruggs, and what does he have to do with hospital finance? You may noi b" familiar with thc name, but

you will undoubtedly read about his work and its influence 0n how

Lnirrsured patients are billed and the manner in which the bills are

collected. You see, Dickie Scruggs runs a law firm in Pascagoula, Mis-

sissippi, that made huge amounts of money out of multibillion-dollar

,.ttll*.nts from asbestos and tobacco companies. Now, his law firm is taking on the not-for-profit hospital industry. (To find out about his

more recent activities, both good and bad, do a Wikipedia se&rch on

Dickie Scruggs.) . His firm has filed more than 7o lawsuits in federal courts against . not-for-profit hospitals, alleging that the hospitals

routinely ovencharge

self-pal patients, hound them with aggressive collection tactics, and

fail lo piovide adequate charity care in violation of their tax'exempt

status. [n a number of the lawsuits, the American Hospital fuspciation

(AHA) is named as a coconspirator and defendant. Needless to say, the

AHA has called the lawsuits "baseless" and a diversion, of resoufces that

could otherwise be used for community healthcare.

The heart of the lawsuits revolves around two issues. First, th. fact that patients who are least able to pay are generally charged the

most. It is common practice to bill self-pay patients at full charges, whereas most every other payer is paying less than full charges, often

substantially less. For example, consider the case of |ane Adams, age

23,

o HAP, 2o1o. Reproduction without permission is prohibited.

236 Cases in lfealthcare Finance

zz and uninsured, who recently spent hvo days irr not-for-profit Front Street Hospital for an appendectomy procedure. Her hospital bill sas $r4,ooo, and doctor's fees aclded another $5,ooo. It turns outthat if u local HMO had insured Jan,:, the hospital bill would have been about $z,5oo. Medicaid would have paid about $5,ooo, and Medicare u'ould have paid about $7,8oo for the same procedure. "Why do I get stuck with the'whole bill?" asked )ane. "An uninsured person has a lot lmu money than insurance companies or government agencies."

Unfortunately, Jane stunnbled onto a troubling fact of hospital F nance: Most hospitals set official "charges" for their services but then agree to discount those charrges for third-party payers. As a result, :# most no one bLrt the uninsured ever pays "official" charges. In sonle ways, hospital charges are like hotel "rack rates," which are postrd prices that everi,body knows nobody pays. But the hospital industn' is different, because uninsured patients traditionally have be,en billed dw equivalent of rack rates.

The second element of the lawsuits revolves around collection tac- tics. Nthough hospitals r:ollect less than 5 percent of billin,gs from indi- gent patients, many hospitalrs are aggressive in the,ir collection tacticn A press release announcing the lawsuits said that hospitals engage ,in business methods calculated to defeat the rights o1 uninsured patientn According to Scruggs, if an,C when the uninsured patient can't pflr" not-for-profit hospitals often intimidate and harass uninsured patienlr th rou gh

\'goon-l ike and pre datory coll ection tactics that fre,quentl), scetr

the patient for life, incluLding; the trauma of personal bankruptcy." To illustrate, consider the case of Marlin Bushman, who \4/as aF

rested, l-randcuffed, and taken to jail for missing a court hearing about a $579 llront Street bill. This collection tactic, known as "body attacftr ment," has been abandoned by most other creditors. Said one obsen-rr, "The concept of debtor's prison as we understand it from Dickens" time is alive and well in the l-rospital industry." Another favorite shong arm tactic is to place a lien on the patient's house. For example, Froffi Street placed a $3,6oo lien on the house of Ben Pickett For a $3,ocm unpaid hospital bill. Furthermore, a threat was made to foreclose, arud hence force Ben to sell the house, if the debt wasr not paid within gn days. The interest on the debt was pegged at 12 percent, which mean$ that Ben will never be able to pay it off because the interest is accruing [aster than his ability to makr: payments.

Ethics Case 5: Front Street Hospital 237

The worst part of these billing and collection tactics, according to Scruggs, is that these policies are deliberately put in place to discour-

age the indigent from seeking healthcare services. By discouraging un-

insured patients from seeking healthcare, not-for-profit hospitals are avoiding their obligation to provide charitable services as required by

their not-for-profi t status.

What do you think about the billing and collection policies of not- for-profit hospitals related to the uninsured? Does this case present an

ethical issue? If so, to, which party (or parties)? If you could act as the ultimate authority in this situation, what would you do?